The China-US semiconductor war is getting even tougher

New round in the semiconductor war between the United States and China. This time the blow was struck by Beijing, which created the largest investment fund for the sector ever seen in the country. Almost 50 billion dollars to respond to American tariffs, with a clear objective: self-sufficiency and expansion in the semiconductor sector.

The trade war between the USA and China has been fought on multiple fronts for years. That of electric cars, the energy transition sector and the chip industry (production, sales and know-how). On semiconductors the war continues with tariffs and investments. The United States and the European Union have put almost $81 billion on the table for the production of next-generation semiconductors. First tranche of almost 380 billion dollars already allocated.

China has been grappling with an economic plan in favor of microchips for ten years. In 2014 it started with an investment of almost 140 billion yuan (18 billion dollars). In 2019 it was the turn of 204 billion yuan (about 28 billion dollars). And now it's Big Fund III's turn: 344 billion yuan (47.5 billion dollars). The largest shareholder of the fund is the Ministry of Finance of Beijing (17%) which has paid approximately 8 billion dollars. Next is China Development Bank Capital with 10.5% and then seventeen investors (including five large Chinese banks).

An investment never seen before in China. To win the war with Washington? The Dragon is certainly in difficulty due to the blockade imposed by the United States. In 2022, the White House practically banned American companies (and “invited” allies) from selling advanced chips and machinery to produce semiconductors to China. He then raised duties on Chinese products in the sector to more than 100%.

Beijing, therefore, exports with difficulty and cannot easily buy advanced chips and equipment for their production. This has repercussions on Beijing's technological progress, which risks falling behind the West, especially in artificial intelligence. This is the reason for Big Fund III. China wants to become more autonomous in semiconductors (no longer suffering the repercussions of American blockades) and wants to free itself for the development of generative Artificial Intelligence. So this fund of unprecedented size is made, albeit undisclosedly, to support the development of US-restricted chipmaking equipment and help major Chinese semiconductor companies quickly transition from international to domestic suppliers for chip production.

Beijing's move is not just about playing defense. China wants to become autonomous and a world leader in technology, but there is a risk around the corner, according to some observers. Beijing has recently stepped up the production of less advanced chips. As if wanting to reserve this market share for itself. New funds can provide financing in this sense, but the downside is closing themselves (and forcing their companies to do so) in a less innovative and international market.

And then there is the Taiwan factor, a historic ally of the United States and a strategic node for the global chip economy. What if China reannexed Taiwan? The military tests of recent days have worried the White House. According to Bloomberg, the Taiwanese TSMC and the Dutch ASML, leaders on the island, have remote control systems for activities and could deactivate the machinery at any time if necessary. Between duties, bans and investments, therefore, the chip war still seems to be just beginning.